Financial Valuation Calculation with Negative Divisors

Resolve Bottlenecks,
Find Innovative SolutionsGenerate Solutions

Solution Overview

Problem

Existing methods fail to provide a meaningful representation of the Price-to-Earnings (P/E) multiple for companies with negative earnings, typically leaving it blank or marking it as 'N/A', which does not leverage the underlying mathematical structure effectively.

Innovation Solution

A three-dimensional visualization approach using a tape measure folding method and the equation (PRICE / (Absolute(-Earnings)) + 2 allows for the calculation and representation of the P/E multiple even when earnings are negative, and can be extended to other financial ratios like Cash Flow and Book Value.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Measurement precision

If the P/E multiple is left blank or marked as 'N/A' for companies with negative earnings, then mathematical correctness is maintained, but meaningful representation and analytical capability are lost

Engineering Contradiction:

Improvemeaningful representationVSAvoidcalculation method

Core Design Contradiction:

Measurement precisionVSDevice complexity

Solution Approach 1:

The patent transforms the denominator from raw earnings to absolute value of negative earnings plus a constant (2), converting an undefined mathematical operation into a meaningful financial metric. This parameter transformation allows the P/E multiple to be calculated and represented meaningfully even when earnings are negative, resolving the contradiction between mathematical correctness and meaningful representation.

Inventive Principle:

Principle #35Parameter changes

2Ease of operation

If a traditional division method is used for negative earnings, then simplicity is maintained, but the result becomes mathematically undefined or misleading

Engineering Contradiction:

Improvecalculation simplicityVSAvoidresult accuracy

Core Design Contradiction:

Ease of operationVSReliability

Solution Approach 1:

The patent converts the harmful effect of negative earnings (which traditionally causes division by negative or zero values) into a beneficial metric by taking the absolute value and adding 2. This transformation turns the problematic negative earnings figure into a reliable denominator that provides meaningful valuation information while maintaining calculation simplicity.

Inventive Principle:

Principle #22Blessing in disguise (Convert harm into benefit)

3Adaptability or versatility

If the P/E multiple is not calculated for negative earnings, then consistency with traditional financial analysis is maintained, but analytical capability and insight are reduced

Engineering Contradiction:

Improveanalytical capabilityVSAvoidmethodology

Core Design Contradiction:

Adaptability or versatilityVSDevice complexity

Solution Approach 1:

The patent creates a universal formula that works for both positive and negative earnings scenarios. By using absolute value and adding a constant, the same calculation method can be applied across all companies regardless of their earnings status, enhancing adaptability and versatility of financial analysis while providing consistent methodology.

Inventive Principle:

Principle #6Universality (Multi-functionality)

Data Source

PatentUS20250104159A1System and Methods for calculating common financial valuation measure with negative Divisors (Earnings, Cash Flow, Book Value, EBITDA, EBT and etc.)

Publication Date: 2025.03.27 AHN FERRIS

AI summary

System and Methods for calculating common financial valuation measure with negative Divisors (Earnings, Cash Flow, Book Value, EBITDA, EBT and etc).